Opinion

It’s time to protect all leaseholders from ruinous building safety remediation costs

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In my previous piece for Safety Management last summer (‘A new Building Safety Remediation Scheme would hold developers and builders to account for all fire and building safety defects in homes’) I set the scene on the unfolding world of building safety remediation and described how I was attempting to change things in the interests of consumer safety. Now with a general election called, there is an opportunity to influence the policies of a new, incoming administration.


So, although I admit to having been unsuccessful in getting policy change from a government which enjoyed a large majority in Parliament despite waning support in the country, the facts on the ground (or several floors up!) remain stubbornly as they were over a year ago.

Photograph: iStock/richardwatson

The leasehold residential market remains in the doldrums but whether this is a result of the effects of the Building Safety Act 2022 and earlier legislation or the possible outcomes of the second Grenfell Inquiry (publication now promised for early September 2024) is unclear. What is evident to me, however, is that there is a deficit of verifiable data on the many potential causes and effects and an unhelpful level of conjecture and guesswork.

Labyrinth processes

Anecdotally and in various journals, it does appear to me that there is considerable concern among professionals about the labyrinthine processes under the Government’s building safety regime with the three tiers of protected, partially protected and unprotected leaseholds throwing up all manner of anomalies. I continue to receive emails from leaseholders or their families who are unable to sell their flats, are faced with sky-high insurance and interim safety measure costs and may yet find themselves liable for contributing to very significant levels of remediation cost. I am told that conveyancers in particular may be reluctant to undertake work where building safety issues may be in point.

The question of risk assessment in all this has therefore not diminished in relevance; there are three elements to this: risk to human life; risk of significant damage or destruction to the building itself; and risk to the wider market, including reputational risk.

The Government in continuing to rely on the Independent Expert Statement of 21 July 2021, in which it was concluded that 11 metre high and lower buildings presented a materially lower risk, appears to have focused on the first of these. I conclude that this was done for the purposes of political and economic risk management. But that narrow interpretation of risk does not overcome the fact that many low-rise buildings do incorporate serious fire risks which affect residents and block owners very severely. It’s just that we know much less about the incidence of significant defects or their distribution in this cohort. Furthermore, we do not know how many buildings may be affected by association rather than objective dangers.

It is clear the attendant obligations of new fire safety measures in higher-risk residential blocks are set to cement permanently high costs in terms of resultant service charges faced by occupiers. Future buildings may well incorporate much wider safety margins (but as with dual staircase guidance, will increase costs while arguments over twin staircases in existing buildings seem set to run for some time).

The Earl of Lytton is an independent crossbench peer in the House of Lords as well as a Fellow of RICS (Royal Institution of Chartered Surveyors).

It’s worth repeating that the vast majority of the stock of residential blocks likely to be present in, say, 2050, is already in existence. Meantime, the risk is of cutting corners on safety and remediation in order to avoid crippling costs; we are already seeing a pushback from developers who have previously committed to the Responsible Actors Scheme and potentially residents will be faced with permanently enhanced ‘known unknown’ risks in the homes they occupy.

Ministers until very recently wagged their finger at the insurance industry and vowed to take matters up with the regulator, the Financial Conduct Authority. However, as a market observer, I considered this was and remains poorly targeted. Insurers themselves do not make markets; rather these are composed of myriad underwriting syndicates and other risk takers who factor all manner of aspects into their pricing of risk; this may include actual physical deficiency along with a host of other factors governing the likelihood of an insured peril occurring and a resultant claim under the policy.

Remember, this is a reaction to perceived risk that has already taken place and priced into the market. Furthermore, these risk takers are not solely in the UK but may be anywhere around the globe, making international comparisons of risk profile. This is a perfect example of politics being unable to outrun markets.

Achieving policy aims

Dealing with risk requires transparency, a degree of certainty of outcomes and a clear procedural route to achieve policy aims over extended timescales. I’d venture to suggest that there has been a shortfall in clarity of thought on all of these. This, furthermore, is not a closed loop; inevitably uncertainty and risk in one area seep out into others. If it was ever thought that making complex arrangements for remediation liability on a very interconnected world of residential property would be successful, it should now be apparent that the dynamics are much more challenging. 

Professional risk, finance, economic, social and (in construction terms) industrial aspects, all demonstrate the truth that this asset class is anything but simple. And curiously, the traditional role of government to step in where market failure has occurred, has met with increasing reluctance over time – as if unquantifiable societal risks should somehow be taken on board by market makers adroit at limiting the scope of risks they underwrite.

So, this is now to be the inheritance of an incoming administration following 4 July. And setting matters to rights might start with a reversal of what looks like a deliberate blindfold of ‘see no evil’ (even less go looking for it!).

Protecting innocent property owners is not simply a matter of duty towards consumers but also about making sure those who constructed buildings to deficient standards are held responsible. Creating a category of bogeyman block owners, who may themselves be innocent of the causes, doesn’t cut it either. And as the mercury in what environmental economist John Adams described as the ‘risk thermometer’ continues to rise, the willingness of residents and managers alike to step forward and accept responsibility for running of buildings is shrinking.

‘Huge reputational damage’ for construction

Everyone knows how this mischief came about and what is needed to address it. Stopping short of what is necessary doesn’t buy time or political advantage but makes a bad situation worse with unmeasured and ongoing value write-offs, massive pitfalls for the unwary in a very complex economic sector and huge reputational damage for the construction side. And in all this may be found the human anguish of those trapped in properties that should have been their safe haven and secure investment, but have now become their financial and emotional leg-irons. 

In Parliament I proposed consumer protection measures with in-built cost recovery. In building safety terms this would have affected politically influential commercial interests so I am unsurprised at the lack of progress.

I will, however, continue to press for solutions that offer just and equitable outcomes – if not my version then by supporting someone else’s. A new government presents a real opportunity, especially if the main players involved with the resultant building stock – occupiers, owners, managers, financial bodies and professionals – speak with one voice.

The Earl of Lytton is an independent crossbench peer in the House of Lords as well as a Fellow of RICS (Royal Institution of Chartered Surveyors). He has a special interest in property economics and has sought to improve consumer protection for all classes of owner in legislation which has followed from the Grenfell Tragedy of 2017.

For more information on the proposed Building Safety Remediation Scheme see:

buildingsafetyscheme.org

@polluterpaysbsb

@BuildSafeFlats

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